The latest challenge to Cisco's Internet dominance has investors worried about tumbling market share and profit margins. The fears are overblown. Why the shares could return 20%.

Cisco Systems Chief Executive John Chambers spoke excitedly last week at the Consumer Electronics Show in Las Vegas about an "Internet of everything" that will one day expand networks to sensor-equipped parking spaces, shopping carts, even garbage cans. But investors seem preoccupied with the prospect of an Internet of lower profits, where Cisco's lucrative, top-selling networking gear is displaced by no-name hardware powered by third-party software. In November, the company slashed its revenue and earnings guidance. Shares (ticker: CSCO) have since slid. At $22.22, they're cheaper than they were a decade...